Thursday, November 08, 2007

AOL VoIP Failure

"When SunRocket failed, John McKinley blogged about his experience as CTO and President of Digital Services at AOL. He “was to launch a Vonage-like competitor to the market by 3Q/2005. Luckily, I had a really talented team and a passionate leader (Gil Weigand) running the effort. In an 8 month period, they built a carrier-grade telephony company. This went well beyond the base technology development. It meant establishing a call center, building a fulfillment solution for the product, and navigating a litany of regulatory issues (including the new E911 requirement imposed by the FCC). Lots of 90+ hour weeks and cases of Red Bull. TotalTalk was a really elegant solution and the
first fully E911-compliant solution in the market. ... We launched, and several things became immediately apparent [listed below and 3 months after launch, done].

Customer acquisition costs were really high ($250-300), and nothing was happening to change that dynamic.

The major cable players were beginning to become real juggernauts, acquiring phone customers at low costs through really compelling double and triple play bundles.

The regulators were no fans of the alternate carriers (VoIP players), and that attitude was not going to change anytime soon

The traditional phone companies were going to fight back, offering their own “all you can drink” calling plans at competitive monthly prices ($39-$49/mo), more to fight the attack by the cable industry than the VoIP industry, but there was material collateral damage to the VoIP sector as well.

There was inherent channel conflict in having a cable company and AOL under the same roof wanting to sell alternate versions of primary line service in the market at the same time, and due to the importance of Time Warner Cable’s growth to the stock price, any issues were logically going to go the cable company’s way (a painful but pragmatic reality).

Adding some stats about AOL from Valleywag: "AOL has lost 5.1 million subscribers -- a third of its paying user base -- in a year, according to the latest numbers from Time Warner. AOL is down to 10.1 million subs from its peak of 30 million shortly after the merger between AOL and Time Warner in 2001. This could be why AOL is moving to an advertising-based business. Just a guess."